Unemployment, Wage Developments and the Economic Policy Mix in Europe

  • Stefan Collignon


With the start of European Monetary Union, questions about the optimal policy mix in the euro area have gained prominence, especially against the background of persistent high unemployment. Monetary policy is now centrally controlled by the independent European Central Bank (ECB), whose primary objective is to maintain price stability. Yet, most other policy responsibilities remain at the national level, notably fiscal policy and wage bargaining. Traditionally, the issue of the policy mix has focused on the interaction between monetary and budget policies.1 But in view of Europe’s high unemployment, it is necessary to bring wage developments into the picture (Welfens and Jungmittag, 1997). Most of the literature on EMU and labour markets focuses on the need for structural reforms in order to increase flexibility,2 but little has been said on wage bargaining. At an institutional level, the European Council in Cologne in June 1999 complemented structural reform policies pursued in the labour (Luxembourg-process) and product markets (Cardiff-process) by a Macroeconomic Dialogue (Cologne-process) which involves wage bargainers, governments and the ECB. Its purpose is to increase economic growth and employment. However, the theoretical foundations for integrating wage bargaining into the policy mix are not always clear. This paper aims at contributing to such a theory, first by looking at some of the theoretical questions involved in the dominant view, followed by considerations of capital accumulation and finally some policy conclusions.


Labour Market Interest Rate Monetary Policy Central Bank Capital Stock 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


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Copyright information

© Springer Science+Business Media Dordrecht 2001

Authors and Affiliations

  • Stefan Collignon
    • 1
  1. 1.Federal Ministry of FinanceBerlinGermany

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